Through the revolving door: merger talks

These days, it feels like every other day there are news of the beginning or end of merger talks between the biggest players. Axalta just ended merger discussions with two big competitors. Axalta emphasised that it is not under any pressure to merge. Nevertheless, another merger remains a strong possibility. Who could be a candidate?

With Akzo Nobel and Nippon Paint two major player seem to be out of the picture. Axalta ended its merger discussions with Akzo Nobel a few weeks ago and confirmed only days later to be in talks with Japanese competitor Nippon Paint. Merely a week after this news broke, the discussions have already come to a close.

A quite likely contender could of course be PPG. After their unsuccessful quest to acquire Akzo Nobel earlier this year, the American coatings giant might be in the market. Due to both companies’ strong focus on automotive coatings, a merger would have a great impact on the automotive coatings sector. But as both companies are among the largest producers of automotive coatings, merging might be problematic with regard to antitrust laws. However, one also cannot rule out that rather than showing interest in Axalta, PPG might start another bid for Akzo Nobel.

Antitrust issues might also arise if BASF Coatings was to start merger talks. Having not expressed any interest yet, the German coatings concern seems a less likely contender. Another candidate could be Sherwin Williams. But to me this seems also less probable as the acquisition of Valspar has been completed only six months ago. Additionally, as Sherwin has just sold Valspar’s wood coatings business to Axalta, a fusion would entail a re-buy of this department.

Going in for another round?

Another possibility would be Nippon Paint or Akzo Nobel going in for another, higher, offer. Especially the latter might continue to be interested. According to Bloomberg Gadfly, the potential synergies of an Akzo Nobel/Axalta fusion are quite substantial, analysts estimate at least EUR 250 million annually – if not more. Plus, a merger with Axalta would also help Akzo Nobel to shut the door on future offers by PPG. ING analyst Stijn Demester even dubs a merger as the "ideal poison pill” as it would make Akzo Nobel "undigestable” for PPG. However, Akzo Nobel’s investors might feel otherwise about a deal, as according to Bloomberg Gadfly in case of a merger they might own a smaller share than their profit contribution merited.

It will be interesting to see what will happen next. To my mind, either PPG expressing interest or another round of talks between Akzo Nobel and Axalta are the most probable scenarios. What do you think?